All flashcards
Flashcard 1: Identify the effect on interest rates if government deficits increase.
Answer: Interest rates increase due to higher demand for funds. Government competes with private borrowers, increasing overall demand for funds.
Flashcard 2: Identify the effect of a tax incentive for saving on the loanable funds supply.
Answer: The supply increases. Tax breaks make saving more attractive, encouraging higher savings rates.
Flashcard 3: What happens to the interest rate if there is an increase in savings?
Answer: The interest rate decreases. More supply shifts the curve right, lowering the equilibrium price (interest rate).
Flashcard 4: What happens to the interest rate if there is an increase in investment demand?
Answer: The interest rate increases. Greater demand shifts the curve right, raising the equilibrium price (interest rate).
Flashcard 5: Identify the effect on interest rates if government deficits increase.
Answer: Interest rates increase due to higher demand for funds. Government competes with private borrowers, increasing overall demand for funds.
Flashcard 6: State the effect of increased capital inflows on the Loanable Funds Market.
Answer: Increased capital inflows lower the interest rate. Foreign funds increase the domestic supply, reducing the equilibrium rate.
Flashcard 7: What is the effect of a decrease in consumer confidence on savings?
Answer: A decrease in consumer confidence increases savings. Worried consumers reduce spending and increase saving for precautionary reasons.
Flashcard 8: What effect does an increase in the interest rate have on investment spending?
Answer: Investment spending decreases. Higher cost of borrowing makes fewer investment projects profitable.
Flashcard 9: What shifts the supply curve in the Loanable Funds Market to the right?
Answer: An increase in savings. Rightward shift increases quantity supplied at each interest rate level.
Flashcard 10: What shifts the demand curve in the Loanable Funds Market to the left?
Answer: A decrease in investment demand. Leftward shift decreases quantity demanded at each interest rate level.
Flashcard 11: Identify the effect of an increase in technology on investment demand.
Answer: Investment demand increases. Better technology makes more investment projects profitable and worthwhile.
Flashcard 12: What is the effect of an increase in foreign saving on the Loanable Funds Market?
Answer: Interest rates decrease. Additional foreign supply increases total funds available in the market.
Flashcard 13: What is the effect of inflation expectations on nominal interest rates?
Answer: Nominal interest rates increase. Lenders demand higher nominal rates to compensate for expected inflation.
Flashcard 14: State the impact of a government budget surplus on the Loanable Funds Market.
Answer: It increases the supply of loanable funds. Government saves rather than borrows, adding to the supply of funds.
Flashcard 15: What happens to real interest rates if actual inflation is higher than expected?
Answer: Real interest rates decrease. Actual inflation erodes the real return that was expected.
Flashcard 16: What happens to the supply of loanable funds if income levels increase?
Answer: The supply increases. Higher incomes typically lead to increased saving capacity.
Flashcard 17: What is the effect of an increase in government borrowing on private investment?
Answer: Private investment decreases. Crowding out occurs as government borrowing raises rates for private borrowers.
Flashcard 18: What is the impact of higher interest rates on household savings?
Answer: Household savings increase. Higher returns on savings encourage households to save more money.
Flashcard 19: What is the result of a decrease in the reserve requirement on loanable funds supply?
Answer: The supply of loanable funds increases. Lower reserves allow banks to lend more of their deposits.
Flashcard 20: Identify the impact of expansionary monetary policy on the interest rate.
Answer: Interest rates decrease. More money supply reduces the cost of borrowing funds.
Flashcard 21: What is the effect of an increase in expected future income on current savings?
Answer: Current savings decrease. Expecting higher future income reduces the need to save today.
Flashcard 22: What is the effect of a decrease in corporate taxes on investment demand?
Answer: Investment demand increases. Lower taxes increase after-tax returns on business investments.
Flashcard 23: Identify the impact of an increase in the money supply on the Loanable Funds Market.
Answer: Interest rates decrease. More money available makes borrowing cheaper and easier to obtain.
Flashcard 24: What shifts the supply curve in the Loanable Funds Market to the left?
Answer: A decrease in savings. Leftward shift reduces quantity supplied at each interest rate level.
Flashcard 25: What shifts the demand curve in the Loanable Funds Market to the right?
Answer: An increase in investment demand. Rightward shift increases quantity demanded at each interest rate level.
Flashcard 26: Identify the effect of an increase in technology on investment demand.
Answer: Investment demand increases. Better technology makes more investment projects profitable and worthwhile.
Flashcard 27: What shifts the demand curve in the Loanable Funds Market to the left?
Answer: A decrease in investment demand. Leftward shift decreases quantity demanded at each interest rate level.
Flashcard 28: What is the result of a decrease in the reserve requirement on loanable funds supply?
Answer: The supply of loanable funds increases. Lower reserves allow banks to lend more of their deposits.
Flashcard 29: What is the effect of a decrease in consumer confidence on savings?
Answer: A decrease in consumer confidence increases savings. Worried consumers reduce spending and increase saving for precautionary reasons.
Flashcard 30: What shifts the supply curve in the Loanable Funds Market to the right?
Answer: An increase in savings. Rightward shift increases quantity supplied at each interest rate level.